McDonald's Chevrolet, Inc. v. Johnson

• Decision Date: 16 May 1978
• Docket Number: No. 1-1077A245,1-1077A245
• Citation: 376 N.E.2d 106,24 UCC Rep. 331,176 Ind.App. 399
• Parties: , 24 UCC Rep.Serv. 331 McDONALD'S CHEVROLET, INC., Defendant-Appellant, v. Otis JOHNSON d/b/a Johnny's Car Lot, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 106

376 N.E.2d 106

176 Ind.App. 399, 24 UCC Rep.Serv. 331

McDONALD'S CHEVROLET, INC., Defendant-Appellant, v. Otis JOHNSON d/b/a Johnny's Car Lot, Plaintiff-Appellee.

No. 1-1077A245.

Court of Appeals of Indiana,First District.

May 16, 1978.

Robert G. Leonard, Fitzpatrick, Chambers & Waller, Washington, for appellant

Glenn A. Grampp, Lopp, Lopp & Grampp, Evansville, for appellee.

LOWDERMILK, Judge.

STATEMENT OF THE CASE

Defendant-appellant McDonald's Chevrolet, Inc. (McDonald) appeals from the granting of summary judgment on the issue of liability and the award of $9,500 for breach of warranty of good title in the sale of a motor home by McDonald to plaintiff-appellee Otis Johnson (Johnson).

We affirm.

FACTS

Sometime prior to March 1, 1974, W. A. Andres, of Fort Worth, Texas, purchased a motor home. On March 10, 1974, Andres rented his motor home, pursuant to the terms of a rental contract, for a period of thirteen days to one Phillip E. Robertson (whose actual name appears to have been Lewis E. Murphy). As McDonald aptly states in its brief, "Murphy drove off into the sunset never to be seen again by Andres."

Using the name L. E. Boggs, Murphy obtained an Alabama registration for the motor home sometime between March and July 1974.

On July 8, 1974, the State of Nebraska provided L. E. Boggs a certificate of title for the vehicle.

Title was transferred from L. E. Boggs to Lewis E. Murphy later that same month.

On September 5, 1974, Murphy wandered into McDonald's Chevrolet, Inc., located in Washington, Indiana, and purchased a 1974 truck and a 1973 fifth-wheel trailer for the price of $20,600; he was allowed $11,100 on the motor home, which was taken in trade after Murphy applied for an Indiana certificate of title for the motor home. Murphy paid McDonald $1,000 before he drove off into the sunset once again.

Johnson purchased the motor home from McDonald for $9,500 on September 20, 1974, for the purported purpose of reselling it from his own used car lot. McDonald provided Johnson a certificate of title for the vehicle on or about November 7, 1974.

On October 30, 1975, the Indiana State Police seized the motor home from Johnson and ultimately surrendered the vehicle to Andres' insurer, Foremost Insurance Company.

Investigation revealed later that Murphy apparently stole the serial number found on the motor home from a vehicle belonging to a Wichita Falls, Texas, dealer. That false identification number appeared on the documents Murphy obtained in Alabama, Nebraska, and Indiana.

Johnson filed suit against McDonald alleging breach of warranty of good title, and against Foremost Insurance Company to replevy the motor home. Johnson moved for summary judgment against McDonald, which the trial court granted December 7, 1976. After holding a hearing on the issue of damages, the trial court entered judgment in the amount of $9,500 for Johnson and against McDonald.

ISSUES

McDonald raises three issues for review:

1. Is the judgment contrary to law?

2. Is the judgment contrary to the evidence?

3. Do genuine issues of material fact exist which make summary judgment improper?

Issue One

McDonald and Johnson agree that McDonald provided Johnson a warranty of good title. ¹ McDonald argues that Murphy possessed voidable title, that Murphy transferred good title to McDonald, and that McDonald transferred good title to Johnson.

IC 1971, 26-1-2-403 (Burns Code Ed.) (hereinafter referred to as 2-403) provides, in part:

"(1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though

(a) the transferor was deceived as to the identity of the purchaser; or

(b) the delivery was in exchange for a check which is later dishonored; or

(c) it was agreed that the transaction was to be a 'cash sale'; or

(d) the delivery was procured through fraud punishable as larcenous under the criminal law. * * * "

McDonald argues that the rental transaction entered into between Andres and Robertson (Murphy) was a "purchase" to which 2-403 applies. According to IC 1971, 26-1-1-201(32) (Burns Code Ed.),

"(32) 'Purchase' includes taking by sale, discount, negotiation, mortgage, pledge, lien, issue or reissue, gift or any other voluntary transaction creating an interest in property."

The rental contract entered into between Andres and Murphy created a bailment. Light v. Lend Lease Transportation Co. (1959), 129 Ind.App. 234, 156 N.E.2d 94. ² A bailment involves no transfer of ownership; the bailee acquires only a possessory interest continuing for the period of bailment. Finch v. McClellan (1921), 77 Ind.App. 533, 130 N.E. 13. Because the transaction did give Murphy a possessory interest, the transaction satisfies the definition of a "purchase" and 2-403 is applicable.

McDonald argues next that (a) and (d) of subsection (1) of 2-403 support its contention that it took good title from Murphy and passed good title to Johnson. McDonald acknowledges that Murphy could transfer good title to a good faith purchaser for value only if Murphy possessed voidable title. Our review, therefore, must address the question of whether Murphy held voidable title.

In the Indiana Comments, prepared by Professors Harry Pratter and R. Bruce Townsend, mention is made of the fact that the Uniform Commercial Code does not define "voidable title." We look to case law to determine the nature of Murphy's title.

In Rocco v. Server (1929), 89 Ind.App. 457, 165 N.E. 335, owner Rocco sold an automobile to purchaser O'Brien and received a worthless check in exchange. O'Brien sold to Wolf, and Wolf sold to Server. Server, a good faith purchaser for value, prevailed over Rocco because Rocco intended to sell and O'Brien's fraudulent act of giving a worthless check did not alter the fact that Rocco had intended to transfer ownership.

As Judge Buchanan explained in Sacks v. State (1977), Ind.App., 360 N.E.2d 21, 28, referring to the Uniform Commercial Code:

" * * *Buc

Section 2-403 was intended to determine the priorities between two innocent parties: (1) the original owner who parts with his goods through fraudulent conduct of another and (2) an innocent third party who gives value for the goods to the perpetrator of the fraud without knowledge of the fraud. By favoring the innocent third party, the Uniform Commercial Code endeavors to promote the flow of commerce by placing the burden of ascertaining and preventing fraudulent transactions on the one in the best position to prevent them, the original seller. * * * " (Original emphasis)

In the case at bar, however, Andres was a bailor and not a seller. Judge Nichols noted this important distinction in Rocco, at 89 Ind.App. 459-60, at 165 N.E. 336:

" . . . If, as held in Patterson v. Indiana, etc., Securities Co. (1921), 75 Ind.App. 489, 131 N.E. 19, appellant had only intended to part with the possession of the property, as for instance, by loan or hire, and O'Brien, having so obtained possession thereof, appropriated it to himself, he would have been guilty of a larceny, the transaction would have been void, and appellees would not have been protected as innocent purchasers, . . ."

McDonald insists that, because of the...